Northern Trust (NTRS) Q2 2025 Earnings Call July 23, 2025 09:00 AM ET Company ParticipantsJennifer Childe - SVP & Director - IRMichael O'Grady - Chairman & CEODavid Fox - EVP & CFOBetsy Graseck - Global Head - Banks & Diversified Finance ResearchEbrahim Poonawala - MD & Head - North American Banks ResearchMike Mayo - MD & Head - US Large-Cap Bank ResearchAlex Blostein - Managing DirectorDavid Smith - Head - Consumer LendingBrian Bedell - DirectorThomas Leddy - AVP - Equity ResearchConference Call Participan ...

Financial Data and Key Metrics Changes - The company reported second quarter net income of $421 million and earnings per share of $2.13, with a return on average common equity of 14.2% [28] - Revenue grew by 8% year over year, while expenses increased by 4.8%, resulting in a pretax margin improvement of 160 basis points [31] - Net interest income reached a record $615 million, up 7% sequentially and 16% year over year [29][37] Business Line Data and Key Metrics Changes - The Asset Servicing business saw assets under custody and administration increase to $16.9 trillion, reflecting a 9% year-over-year increase [32] - Wealth Management assets under management rose to $469 billion, up 12% year over year, with trust investment and other servicing fees increasing by 5% [35] - The Asset Servicing pretax profit nearly doubled year over year, with a pretax margin up more than 10 points to 23.2% [34] Market Data and Key Metrics Changes - The company noted strong transaction volumes in capital markets activities, which were up double digits over the prior year [32] - Average deposits grew by 7% sequentially, contributing to the overall increase in net interest income [33][37] - The company experienced a favorable impact from currency movements on revenue growth, contributing approximately 90 basis points [29] Company Strategy and Development Direction - The "One Northern Trust" strategy focuses on optimizing growth, driving productivity, and strengthening resiliency while managing risk [6][8] - The company is leveraging AI tools to streamline processes and enhance decision-making, aiming for higher margins and better client experiences [9] - The firm is expanding its alternatives investment platform and has seen a record fundraising year, indicating a strong focus on private markets [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's trajectory, adjusting the return on equity target from 10-15% to 13-15% [25][26] - The company is committed to maintaining independence and believes this strategy will yield the best returns for shareholders [26][66] - Management highlighted the importance of executing their strategy effectively to continue delivering positive organic growth and operating leverage [28][31] Other Important Information - The company returned $486 million to shareholders through dividends and stock repurchases, reflecting a payout ratio of 117% [40] - The average earning assets increased by 6% on a linked quarter basis, driven by higher deposit levels [37] - The company is focused on maintaining a disciplined approach to cost management while investing in growth initiatives [21][24] Q&A Session Summary Question: Can you provide numbers on the alternatives initiatives and the new fixed income ETFs? - Management indicated that the alternatives initiatives raised approximately $2.5 billion in the first half, with an additional $1 billion from advisory services, highlighting strong client demand for private markets [49] Question: What is driving the decision to tighten the ROE range? - The tightening of the ROE range reflects the company's consistent performance above the previous target and confidence in the current capital framework [57][59] Question: Is there any scenario where M&A would make sense for the company? - Management emphasized a focus on organic growth but remains open to acquisitions that enhance their value proposition if they align with strategic goals [66][68] Question: How does the company plan to manage NII in a declining interest rate environment? - The company plans to reinvest securities rolling off its balance sheet and is focused on deposit pricing across various currencies to mitigate the impact of lower interest rates [97]